1.7m more homeowners face negative equity

30 July 2008

House prices may fall by 17% over next year says report

According to a new report, almost 1.7 million homeowners could potentially be facing negative equity if property prices continue to fall at their current pace.

The report has come from Standard and Poor’s (S&P), the credit ratings agency, and claims that property prices may drop by 17% over the course of the next year.

If this were to happen it would mean that 14% of all homeowners in the UK with a mortgage would end up with mortgages worth more than their properties.

S&P said: “The downward trend in UK house prices now seems well established, and we expect prices to continue falling in the near term.”

Analysts at S&P are specialists in assessing how creditworthy organisations are when they try to raise money by issuing bonds.

As it stands, 70,000 homes are already in negative equity, which equates to 0.6% of all borrowers in the UK.

Those most at risk of entering negative equity, say S&P, are borrowers who took out buy-to-let mortgages to become landlords, and sub-prime borrowers (people with poor or non-existent credit histories) who borrowed before lenders stopped lending to them.